Banks’ NPL ratio edges higher in July

The non-performing loan (NPL) ratio of Philippine banks rose slightly in July, although the banking system remained stable and well-capitalized, according to the Bangko Sentral ng Pilipinas (BSP).

The NPL ratio increased to 3.35% in July from 3.29% in June, with gross bad loans reaching ₱585.08 billion.

Despite the monthly increase, the July NPL ratio was still below the 3.40% recorded a year earlier.

Reyes Tacandong & Co. Senior Adviser Jonathan Ravelas said the uptick reflected financial pressure on some households and businesses following a prolonged period of high borrowing costs and elevated inflation.

“The increase in non-performing loans in July reflects pockets of financial stress among some households and businesses after an extended period of high borrowing costs and elevated inflation,” Ravelas said.

He noted that the economic recovery has been uneven, with some sectors and borrowers still struggling to regain their financial footing. This has affected the ability of certain borrowers to keep up with loan payments.

Ravelas, however, said the increase should not be viewed as a sign of broader weakness in the banking system.

“At the same time, as bank lending expands, a modest rise in NPLs is a normal part of the credit cycle. The good news is that this does not point to a systemic banking issue,” he said.

He said banks continue to maintain strong capital and adequate provisions, while the NPL ratio remains manageable compared with historical levels.

Ravelas said sustained economic growth, easing inflation and lower interest rates would be important in improving borrowers’ capacity to service their debts.

He added that prudent credit risk management would remain critical as banks expand lending amid changing economic conditions.